Question

Curtis Rich, the cost accountant for Hi-Power Mower Company, recently installed activity-based costing at Hi-Power's St. Louis lawn tractor (riding mower) plant where three models—the 8-horsepower Bladerunner, the 12-horsepower Quickcut, and the 18-horsepower Supercut—are manufactured. Curtis's new product costs for these three models show that the company's traditional costing system had been significantly undercutting the 18-horsepower Supercut. This was due primarily to the lower sales volume of the Supercut compared to the Bladerunner and the Quickcut.

Before completing his analysis and reporting these results to management, Curtis is approached by his friend Ed Gray, who is the production manager for the 18-horsepower Supercut model. Ed has heard from one of Curtis's staff about the new product costs and is upset and worried about his job because the new costs show the Supercut to be losing, rather than making, money.

At first, Ed condemns the new cost system, whereupon Curtis explains the practice of activity-based costing and why it is more accurate than the company's present system. Even more worried now, Ed begs Curtis, “Massage the figures just enough to save the line from being discontinued. You don't want me to lose my job, do you? Anyway, nobody will know.”

Curtis holds firm but agrees to recompute all his calculations for accuracy before submitting his costs to management.

QUESTIONS:

(a)   Who are the stakeholders in this situation?

Define "stakeholders"

List "stakeholders"

(b) What, if any, are the ethical considerations in this situation?

   (Each paragraph should be between 3 to 5 sentences)

Introduction (State the ethical issues, let your readers know what they are about to read...)

Analysis (Detail analysis of the ethical issues you mentioned in your Introduction, educate your readers)

Conclusion (Restating the ethical considerations and your final analysis)

(c) What are Curtis's ethical obligations to the company? To his friend?

Answer 1

(a) The stakeholders in this situation are the people who will get affected by the costing data portrayed by the activity based costing system. The stakeholders in this situation are Ed , Curtis and the management of the company.

(b) The ethical consideration in this regard is whether to save his friends job or whether to report the accurate data to the management. Curtis has calculated the new cost for Supercut based on activity based costing which is more accurate than traditional costing. However, due to this the line might be dicontinued as the new figures show that the product is making a loss.

His friend, Ed has requested him to tweak the figures so that the line is not discontinued and he doesnt lose his job. However, doing so will be wrong as it would misguide the top management of the company. He should not tweak the numbers but he can suggest cost reduction measures for the line.

(c) Curt's ethical obligations to the company are representation of accurate data. To his friend, he can recheck his work and suggest cost reduction measures, however beyond that he will not be able to help his friend.